AES Posed to Pull Out, Russian Company Takes Over

Increased political and economic influence of the United States in Georgia is balanced by Russia!
’s tightening grip on country’s energy assets.

An agreement on strategic cooperation between the Russian Gazprom and Georgia has already been signed, triggering fears that this energy company would receive control over Georgia’s gas distribution infrastructure. By another pending deal the major US investor – energy company AES – will be replaced by Russia’s Unified Energy Systems (UES) to manage Tbilisi electricity distribution network.

Observers say UES and Gazprom deals together will put Georgia’s energy sector entirely under Russian control, which would serve as a powerful political leverage by Moscow. 

Neither AES, which owns 75% shares in the Telasi, nor the UES confirm that the talks are being held. “This issue most probably will be discussed at the AES headquarters, not in Tbilisi. Therefore I can not tell you anything about it,” Irakli Melashvili, official lobbyist of the AES-Telasi told !
Civil Georgia.
 
“We cannot make any comment!
s regarding the AES Telasi,” Tatiana Milaeva, Spokeswomen of the UES told Civil Georgia.

Georgian President Eduard Shevardnadze has already expressed concerns regarding the consultations between AES and UES, adding that he does not mind against UES entry to the Georgian market.

“Unfortunately the company [AES] will leave Georgia. Due to the financial crisis, the company failed to fulfill a number of commitments, despite our numerous concessions,” Shevardnadze in his Monday radio broadcast on July 28.

“The shares of the US company will not be sold to the UES without the participation of the Georgian authorities. As far as I know, the process has already started, though the representatives of the company say nothing about it,” Shevardnadze said, adding that the President of the UES Anatoli Chubais will probably arrive in Tbilisi in the nearest future to discuss the issue.    

Under the article 17 of th!
e framework agreement between the AES and the Georgian government, concluded in 1999, the company has a right sell it shares, with prior written notification to the owner of the remaining 25% of shares, namely the Tbilisi City Municipality.

“Neither we nor the other shareholders were informed by the company. Therefore we do not know what is going on at the moment. If it is confirmed that the negotiations are in progress, we should issue our written consent or rejection, although the holder of the 25% of the shares can not actually affect the decision,” Temur Chincharauli, head of the City Energy Regulation Service told Civil Georgia.

The UES, which is the largest supplier of electricity to Georgia, admits that Georgia is of strategic importance to the company. Spokesperson of the UES says the company is “considering purchase of major energy facilities in Georgia and implementation of the joint projects with the Georgian side.”

&#8!
220;Georgia is among primary customers of the Russian company!
. Besides, we would be able to transit our electricity to Armenia and Turkey through Georgia,” Tatiana Milaeva told Civil Georgia.

At the same time UES is developing a plan of rehabilitating the Enguri hydro energy plant in Abkhazia, according to the agreement reached during the Georgian-Russian Presidential summit in Sochi on March 7.

Georgian authorities claim they do everything to keep the US company in Georgia, or at least to purchase another 26% of shares to hold the capital stock of Telasi. However at the briefing on July 28 President Shevardnadze said “there are few [businessmen] who are interested in Telasi, but I think Badri Patarkatsishvili [former aide to the Russian oligarch Boris Berezovsky, wanted by Russia for fraud allegations, currently residing in Tbilisi] is able to purchase the shares of the company.”

Officials admit that they can do little to resist sale of shares to the Russian company. “The American company o!
wns 75% of the shares and it has the full right to manage them as it wants, but we must support the company, so it continues operating in Georgia,” Deputy State Minister Akaki Zoidze said on July 22.

The Georgian political circles have already expressed concern regarding the possible AES-UES deal. “Of course, replacement of the American company by the Russian one is not in Georgia’s strategic interests,” Chairman of the Parliamentary Committee on Sector Economy Demur Giorkhelidze told Civil Georgia.

Former Parliamentary Chairperson and the leader of the opposition United Democrats party Zurab Zhvania says that in the last two-three months Russia took over the strategic power facilities in Armenia and Belarus and “it is evident that the same trends are developing in Georgia.” He accused the government of inactivity and called upon the authorities to start talks with AES immediately to purchase the capital stocks of Telasi.

Irakli Chubinishvili, Chairman of the Parliamentary speci!
al commission, which investigates the reasons of the energy crisis in Georgia claims that the deal between the AES and the UES “is lobbied by the Energy Ministry officials and other authorities, who are actively engaged in the corruption that persists in the energy sector of the country.”

At a briefing on July 22 Chubinishvili claimed that officials of the Energy Ministry and other relevant institutions, are personally interested in supporting the Russian company to enter the country. He said that “these officials have corrupt arrangements with the company [UES], concerning money laundering”.
 
AES-Telasi lobbyist Irakli Melashvili also blames the Georgian authorities for forcing the US company out of business in Georgia.

“The Georgian side did everything to force the company out. This happened because the company refused to play a dirty game of the local. Corruption is high in Georgian energy sector, but the AES refused!
to be the part of this corrupted system,” Melashvili told Civil Georgia.
 
The US administration is also concerned by the possible takeover of the Georgian strategic energy facilities by the Russian side. The issue was discussed during the meeting between the US Ambassador Richard Miles, President Shevardnadze, State Minister Avtandil Jorbenadze and Energy Minister David Mirtskhulava on July 22 at the State Chancellery.

“The US administration always supported entrance of the AES into the Georgian market and will facilitate in order to keep the company in the country,” Richard Mills said after the meeting.

AES purchased the 75% of the Telasi shares for USD 25 million in 1999. According to the concluded agreement, the company planned to invest 10 million USD annually. However investments made during four years of operation reach USD 275 million in total. 150 million were spent for modernizing the electricity network in the Georgian !
capital. 100 million dollars were paid for the electricity im!
port.

During these years the company had to face many obstacles and criticism for frequent increase of the electricity tariff, which was justified by the AES by the need to cover excess investment. The major blow for the company was the murder of its financial manager Nika Lominadze last August. On July 22 Interior Minister Koba Narchemashvili officially announced that “Nika Lominadze fell victim to the financial machinations of AES Telasi.” 
 
Despite numerous complains towards the US company, the AES decision to pull out from Georgia and entry of the Russian power giant would be a major victory of Moscow to regain influence over Georgia.
 
By Tea Gularidze, Giorgi Sepashvili, Civil Georgia